After-hours block trading, short sales, and information leakage: Evidence from Korea

Abstract

We investigate the impact of insider trading in after-hours block market on stock price and short sales volume, beforeand after the trading becomes public information. During pre-announcement period, positive (negative) abnormalstock return is generated when insiders buy (sell) their shares but does not when quasi-insiders trade, implying thatstock price reflects long-lived private information of corporate governance structure. The impact is most prominentwhen ownership shares are transferred to (from) corporate insiders. In contrast, short sales volume generally doesnot depend on the identity of block holders. Short sales volume has a negative correlation with abnormal stock returnonly during the transaction date, indicating that a short-sale decision of tippees is based on their sole expectation oninstantaneous stock returns. We also find evidence that insiders select the timing of their trades with respect tomaximizing their realized profits or minimizing their purchasing costs.